Stop Me If You've Heard This One Before

The health insurance industry maximizes their profits by delivering as little care as they can legally get away with, or for that matter, illegally.

Health insurers have forced consumers to pay billions of dollars in medical bills that the insurers themselves should have paid, according to a report released yesterday by the staff of the Senate Commerce Committee.

The report was part of a multi-pronged assault on the credibility of private insurers by Commerce Committee Chairman John D. Rockefeller IV (D-W.Va.). It came at a time when Rockefeller, President Obama and others are seeking to offer a public alternative to private health plans as part of broad health-care reform legislation. Health insurers are doing everything they can to block the public option.

At a committee hearing yesterday, three health-care specialists testified that insurers go to great lengths to avoid responsibility for sick people, use deliberately incomprehensible documents to mislead consumers about their benefits, and sell "junk" policies that do not cover needed care. Rockefeller said he was exploring "why consumers get such a raw deal from their insurance companies."

The star witness at the hearing was a former public relations executive for major health insurers whose testimony boiled down to this: Don't trust the insurers.

Wendell Potter is the name of the star witness, a former VP for corporate communications at insurance giant Cigna. His testimony was devastating, as he offered a step-by-step tour into how the insurance industry works to increase their profits. This is the system that Republicans and conservative Democrats want to hold a monopoly over your health care, in a forced market where you have to sign up with them.

What drove Potter from the health insurance business was, well, the health insurance business. The industry, Potter says, is driven by "two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits."

Think about that term for a moment: The industry literally has a term for how much money it "loses" paying for health care.

The best way to drive down "medical-loss," explains Potter, is to stop insuring unhealthy people. You won't, after all, have to spend very much of a healthy person's dollar on medical care because he or she won't need much medical care. And the insurance industry accomplishes this through two main policies. "One is policy rescission," says Potter. "They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment." [...]

Potter also emphasized the practice known as "purging." This is where insurers rid themselves of unprofitable accounts by slapping them with "intentionally unrealistic rate increases." One famous example came when Cigna decided to drive the Entertainment Industry Group Insurance Trust in California and New Jersey off of its books. It hit them with a rate increase that would have left some family plans costing more than $44,000 a year, and it gave them three months to come up with the cash.

The insurers simply follow the profit motive. Under the current system, there is no profit in offering people care, only denying them it. And so competition in the marketplace, or more to the point competition on Wall Street to increase share price (because most insurance markets in this country are limited), depends on coming up with new and exciting ways to either deny care or off-load costs onto customers. Like this ingenious little bit, from the WaPo article:

Many Americans pay higher premiums for the freedom to go outside an insurer's network of doctors and hospitals. When they do, insurers typically pay a percentage of what they call the "usual and customary" rates for the services. How insurers determine the usual rates had long been opaque to consumers and difficult if not impossible for them to challenge.

As it turns out, insurers typically used numbers from Ingenix, a wholly owned subsidiary of the big insurer UnitedHealth Group. Ingenix had an incentive to produce benchmarks that low-balled usual and customary rates and shifted costs from insurers to their customers, the report said.

Ingenix got its data from the same insurers that bought its benchmark information, the report said. Insurers that contributed information to Ingenix often "scrubbed" their data to remove high charges, and Ingenix further manipulated the numbers, removing valid high charges from its calculations, the report said.

Cuomo found that insurers under-reimbursed New York consumers by up to 28 percent, the report said. A dozen insurers have reached settlements agreeing to change their practices; UnitedHealth agreed to the largest payment, $50 million, to help a nonprofit organization set up a new database to replace Ingenix.

I'm convinced that polls showing large numbers of people happy with their health insurance stems from the fact that most people at any given moment don't have occasion to use it. When they do, the horror stories roll in.

These insurance industry groups claim that a public insurance option would dismantle their business. The goal of it would actually be to reverse those incentives. With millions of new customers entering the market, the profits have the potential to soar. But with a public option in competition, as long as there are strong regulations available so insurers cannot cherry-pick the healthy, suddenly they would have to compete on offering the best price or the highest quality plan. The arguments that government can deliver insurance with lower administrative costs, better economies of scale, etc. would be a feature and not a bug, and I don't think the public will react unfavorably to better-quality coverage at a lower price.

The last time that Congress featured the truth about the insurance companies, it went uncovered in the major media. Democrats and especially the President have the ability and the imperative to turn the spotlight on the industry and their practices, and the goal of reversing the incentives in a better fashion for businesses large and small, government and consumers.